Depreciation Class 11 Accountancy – SLM, WDV Methods and Solved Problems

Every fixed asset — machinery, furniture, computers, vehicles — loses value over time through use, wear, and obsolescence. This gradual reduction in value is called Depreciation. Chapter 7 of the Maharashtra State Board Class 11 Accountancy textbook is one of the most calculation-intensive chapters in the syllabus. This guide covers the meaning and causes of depreciation, the two main methods of calculating it, journal entries, asset account preparation, and how to handle the sale of an asset.

What Is Depreciation?

Depreciation is the systematic allocation of the cost of a fixed (tangible) asset over its useful economic life. It represents the portion of the asset's cost that is consumed or expired during an accounting period.

Depreciation is charged as an expense in the Profit & Loss Account and simultaneously reduces the book value of the asset in the Balance Sheet.

Causes of Depreciation

1. Wear and Tear: Physical deterioration through regular use — machinery parts wearing out over time.
2. Efflux of Time: Assets like leasehold property lose value simply with the passage of time, regardless of use.
3. Obsolescence: New technology renders existing assets outdated and less valuable — older computers replaced by faster models.
4. Depletion: Natural resources (mines, oil wells) reduce in value as they are extracted.
5. Accidents: Physical damage from accidents reduces an asset's value.
6. Change in Demand: A reduction in demand for a product can make related machinery less valuable.

Why Is Depreciation Charged?

• To show the true value of assets in the Balance Sheet
• To determine the correct profit or loss — without depreciation, profits would be overstated
• To support planning for replacement of the asset at the end of its useful life
• To follow the Matching Concept — expense matched to the period that benefited

Two Main Methods of Calculating Depreciation

Method 1 — Fixed Instalment Method (Straight Line Method / SLM)

Under this method, an equal amount of depreciation is charged every year throughout the useful life of the asset. The depreciation amount is fixed and does not change from year to year.

Formula:

Annual Depreciation = (Cost of Asset − Scrap Value) / Estimated Useful Life

Example: Machinery purchased for ₹2,00,000. Scrap value ₹20,000. Life 9 years.
Annual Depreciation = (2,00,000 − 20,000) / 9 = ₹20,000 per year

At the end of 9 years, the book value equals the scrap value (₹20,000).

Advantages of SLM:

• Simple and easy to calculate
• Equal charge every year makes comparison easy
• Asset reduces to scrap value precisely at end of life

Disadvantage: Ignores that older assets require more repairs — total charge (depreciation + repairs) increases over time, making it harder to spread costs evenly.

Method 2 — Reducing Balance Method (Written Down Value / WDV Method)

Under this method, depreciation is charged at a fixed percentage on the Written Down Value (WDV) — the book value at the beginning of each year. Since WDV decreases every year, the depreciation amount also decreases.

Formula:

Annual Depreciation = WDV at beginning of year × Rate%

Example: Machinery purchased 1st April 2015 for ₹80,000. Depreciation at 10% p.a. on WDV.

• Year 1 (2015–16): 10% of 80,000 = ₹8,000 → WDV = ₹72,000
• Year 2 (2016–17): 10% of 72,000 = ₹7,200 → WDV = ₹64,800
• Year 3 (2017–18): 10% of 64,800 = ₹6,480 → WDV = ₹58,320

Advantages of WDV:

• Higher depreciation in early years when asset is more productive
• Lower depreciation in later years, offset by higher repair costs — total charge tends to equalise
• Commonly used for tax depreciation in India under the block-of-assets approach, subject to the applicable rates and rules

Disadvantage: Asset never reduces to zero — a small book value always remains.

Journal Entries for Depreciation

When Depreciation Is Charged

Depreciation A/c Dr. [amount]
To Asset A/c

When Depreciation Is Transferred to Profit & Loss Account

Profit & Loss A/c Dr. [amount]
To Depreciation A/c

Both entries are passed at year-end. The Asset A/c is directly reduced by the depreciation amount.

Preparing the Asset Account

The Asset Account is a Real Account — it is maintained year by year showing:

• Opening balance (To Balance b/d)
• Additions during the year (To Bank A/c / To Cash A/c)
• Depreciation charged (By Depreciation A/c)
• Closing balance (By Balance c/d)

The closing balance each year becomes the WDV (book value) at the start of the next year.

Profit or Loss on Sale of an Asset

When a fixed asset is sold before the end of its useful life:

1. Charge depreciation from the last balance sheet date to the date of sale (pro-rata).
2. Calculate WDV on the date of sale.
3. Compare WDV with the sale price:
   • Sale Price > WDV → Profit on Sale (credit Profit on Sale of Asset A/c)
   • Sale Price < WDV → Loss on Sale (debit Loss on Sale of Asset A/c)

Example: Equipment purchased April 2016 for ₹50,000. SLM, life 8 years, scrap ₹2,000. Sold January 2019 for ₹35,000.

• Annual depreciation = (50,000 − 2,000) / 8 = ₹6,000
• Depreciation Apr 2016–Mar 2018 (2 years) = ₹12,000; WDV = ₹38,000
• Depreciation Apr 2018–Jan 2019 (9 months) = 6,000 × 9/12 = ₹4,500; WDV = ₹33,500
• Sale Price ₹35,000 > WDV ₹33,500 → Profit of ₹1,500

Exam Tips for Depreciation

1. Always identify the method (SLM or WDV) before beginning any calculation.
2. For SLM: depreciation amount is the same every year. For WDV: depreciation amount changes every year.
3. For mid-year asset purchase or sale: calculate depreciation pro-rata (months used / 12).
4. When preparing the Asset A/c with additions or disposals, track each asset separately.
5. Profit/Loss on sale always appears in the Profit & Loss Account, not the Asset Account.

Related Posts

• See also: Final Accounts of a Proprietary Concern Class 11 – Trading, P&L and Balance Sheet
• Related: Ledger and Trial Balance Class 11 – Posting, Balancing and Preparation Guide
• Explore: Rectification of Errors Class 11 – Types of Errors and Suspense Account Explained

Interactive Practice Idea: Depreciation What-If Calculator

This can be a slider-based component: change the rate or useful life and watch book value change year by year.

Summary & Study Action Plan

Depreciation is a calculation-heavy chapter in Class 11 Accountancy. Asset Account problems, pro-rata depreciation, and profit or loss on sale of assets are common exam-style applications. With consistent practice, the calculations become mechanical and very fast.

📌 Practise 3 full Asset Account problems under SLM and 3 under WDV. Include at least one with a mid-year purchase and one with a disposal before year-end. That covers every scenario the board can test.

Frequently Asked Questions (FAQ)

Q1: What is depreciation and why is it charged?
Depreciation is the systematic reduction in the value of a fixed asset over its useful life. It is charged to reflect the true asset value, determine correct profit/loss, and match expenses to the period that benefited.

Q2: What is the difference between SLM and WDV methods?
Under SLM, the same amount of depreciation is charged every year. Under WDV, depreciation is charged at a fixed percentage on the reducing book value — so the amount decreases each year.

Q3: Which method is commonly used for tax depreciation in India?
For many assets, income-tax depreciation is computed using the Written Down Value (WDV) block-of-assets approach, subject to the rates and conditions prescribed under tax rules.

Q4: How do you calculate profit or loss on sale of an asset?
Calculate the WDV on the date of sale (after charging depreciation up to that date). Compare with the sale price: Sale Price − WDV = Profit (if positive) or Loss (if negative).

Q5: How is depreciation shown in the Balance Sheet?
Depreciation is deducted from the gross cost of the asset on the Assets side of the Balance Sheet, showing the Net Book Value (WDV) of the asset.

Q6: Is depreciation a cash expense?
No. Depreciation is a non-cash charge — it reduces the book value of the asset and charges an expense to P&L, but no actual cash leaves the business when depreciation is recorded.